- Energy context in Ethiopia
- Ethiopia has vast and largely unharnessed clean energy resources. Domestic electricity demand is expected to continue growing driven by industrialization and a renewed focus on electrification.While Ethiopia has an ambition of scaling-up its electricity generation portfolio, the domestic power generation mix is highly dependent on hydro resources, which are largely impacted by the varying patterns of rainfall. Ethiopia Electric Power (EEP) is therefore planning to diversify its power generation system by exploiting other renewable energy sources. Least-cost generation expansion plans for Ethiopia foresee substantial additions of solar and wind power projects to be commissioned by 2030, which would contribute to meeting domestic and export demand at low cost, while improving system resilience to droughts and climate change.
In front of such bold sector strategy, the power sector does not have the ability to continue self-financing its growth, as Ethiopia’s traditional model of public financing for new investments in the power sector combined with exceptionally low tariffs has compromised the financial health of the national utility particularly when significant capital investments are necessary. The Government of Ethiopia (GoE) is therefore transitioning from public generation investments to Public Private Partnership approaches, enabled by the landmark PPP Proclamation adopted in the recent years.
As part of this overall initiative the GoE has been scaling-up its efforts for exploitation of wind power potential in the country by assessing multiple sites for wind farm development through Public-Private Partnership models. Further to a pre-feasibility analysis of potential wind farm sites and the resulting approval of a suitable subset of candidates for proceeding to the appraisal phase by the PPP Board, Expertise France together with Agénce Française du Development have embarked on supporting the execution of dedicated feasibility studies for two specific wind farms to be located in the Eastern part of the country, each of approx. 150 MW capacity.
- General objective
The purpose of the work is to determine if the PPP approach is the most economically advantageous solution for the Contracting Authority (in this case, Ethiopian Electric Power).
This is demonstrated when a project results technically and financially viable, ultimately resulting in Value for Money for the Government of Ethiopia and the country.
At the same time, the outcome of the work shall identify whether the project will present an attractive investment proposition to the Private Party. If and once the above objectives have been satisfied, the transactions will be deemed suitable and ready for procurement stage.
- Specific objectives
- Determine if there are significant public concerns that must be effectively resolved before the project can be considered viable as a PPP, highlighting the main obstacles for the project’s implementation (both at technical level and in terms of delivery method as traditional vs PPP). Assess if and how such obstacles can be overcome in a cost effective manner.
- Develop a reliable feasibility assessment (or “business case”) that allows the government to make an informed and defendable decision towards moving forward (or rather aborting the project)
- Assess whether the project is an affordable proposition for the government over its lifetime (in terms of end-user and fiscal dimensions)
- Elaborate a demand forecasting for the farm to confirm what size or design capacity of the project should have in order to be economically sustainable (particularly in the context of the Least Cost Power Development Plan for the country) and which party is most suited to take on demand risk
- Identify the key functional components of a project, assess the available technologies to meet the planned output specifications and evaluate the risks affecting the technical performance of the project
- Evaluate the financial feasibility of the PPP by estimating the total costs of the project and identifying the tariff range that allows to recover such costs for the project
- Carry out the Economic Feasibility Analysis for the project, by determining a likely range of required economic costs, net economic benefits, and Internal Rates of Return
- Assess the existing legal framework affecting the project, by evaluating its adequacy for project viability and identifying specific legal and regulatory uncertainties that could lead to delays or cancellations.
- Determine the overall environmental feasibility for the wind farm, and which environmental and social impact mitigation measures the project would require in light of the applicable regulations and standards.
- Provide a comprehensive view of the risks affecting the projects, the allocation of such risks to the parties and the most appropriate mitigation measures.
- Design the preliminary contract structure, including the essential aspects of revenue regime and the payment mechanism
- Developed good indications that the project, implemented as a PPP, delivers Value for Money (VfM); over the traditional EPC procurement mechanism
- Evaluate market potential for the project PPP model in terms of attractiveness to private sector investors and lenders
- Provide a PPP Procurement Strategy for the project in terms of bid model, duration, templates for the relevant documentation and evaluation criteria
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